Fourth International, July 1946

Warren Creel

The Myth of Full Employment
Under Capitalism

These authors [1], Henry Wallace, Secretary of Commerce of the United States, and Sir William Beveridge, economic adviser to the British government, both seek to show that it will be easy for capitalism to eliminate depressions, to provide jobs, high wages and permanent prosperity for all. Each sets forth the same plan, the Keynesian system of controlled government spending. They base their cases on the same trick assumption that capitalism is as rational as modern production can and ought to be.

They exploit the fact that the modern working class has acquired a natural understanding of a cooperative economic system. Workers cooperate with other workers all day long in collective production. To the worker it presents no problem to see how the various industries and branches of production could work as a team for the most efficient production all around, and thereby pour out such a mass of products that there would be plenty for everyone concerned. That is the obvious thing to do with modern machinery.

The difficult thing to understand is the irrational fact that all production can be stalled, and that the millions of mankind can be taken away from their work and forced to stop production, merely because under capitalist ownership the whole of society has to stand still except when it can add to the accumulated riches of a tiny class of capitalists.

This working class understanding of rational economics exists as a firm feeling that modern industry is suited to cooperative production at high efficiency with abundant output assured, and that there is no good reason why such efficient production could not start right now. Hence, the general impatience in the United States, with restrictions or fetters on production.

Politicians seeking mass support, such as Wallace and Beveridge, can no longer base their economic appeal simply on immediate issues like wages, or job protection through tariffs, or even government benefits such as social insurance and relief. Today they must be prepared to answer the more basic demand, that something be done to the economic system to take the fetters off production. Hence these books.

Starting with the general knowledge that modern production should bring abundance, Wallace and Beveridge want to assure everyone that modern production under capitalist ownership can actually bring abundance. At every turn they hide the fact that capitalist ownership regulates production for capitalist profit. They assume that the system runs as production ought to run, to produce for society. On this basis they have no trouble at all painting a rosy picture of capitalism run according to a plan, with a board of government experts ensuring that everything will run smoothly, with jobs and plenty for all. What they can’t account for is the fact that this fine system ever had any crises in the past.

Yet they not only admit the past crises; they pose as stern critics of capitalism’s ills. With banners unfurled, they try to put themselves at the head of the marching army of protest, and lead it astray. Wallace, for instance, even emphasizes that boasts about the high American standard of living are incorrect:

Before the war one third of all families had incomes of less than $1000, averaging about $500; another 40% had incomes between $1000 and $2000, averaging $1400; another 17% had incomes between $2000 and $3000; and the final 10% had incomes of over $3000.

That was before the war, while during the war:

Even with full employment at present wage levels there would still be around 8 million city families getting less than $1000 a year. These families would not be able to buy enough in the way of meat, eggs, and dairy products either to raise healthy children or to maintain their own vigor ... (These 8 million families below the subsistence level amount to more than one-fifth of the total 37 million families in the nation.)

(And in agriculture) For many years, one-half of the nation’s 6½ million farm families have been living on marginal and sub-marginal land and on farms too small to make a decent living. They have been producing only about ten percent of all the farm products sold in the market.

Low incomes spell a low standard of living for employed workers. But with unemployment capitalism suffers another waste from lost production. During the twelve years 1930 to 1941, Wallace calculates the total preventable idleness as 88 million man years. In lost production it comes to $350 billion.

He illustrates the amount thus wasted:

It is enough to pay in full for 70,000,000 homes at $5000 each, more than three times as many as would be necessary to eliminate all the slums in the United States, both rural and urban.

It is enough to more than double the capital stock of all the private corporations in the United States

It is enough to build 350 river-valley authorities the size of TVA.

Low incomes are connected with unemployment. Raising living standards will make jobs.

We must conquer the slums; we must rid ourselves of undernourishment; we must raise the general level of health; and we must make it possible for everyone to develop his or her latent capacities for work and profitable recreation. In doing these things we shall continue to multiply job opportunities.

As early as 1943, the Department of Commerce pointed out to us that, in 1946, we could produce the same amount of goods that we produced in 1940 and still have 19 million workers unemployed. All too often we ignore such statistical guideposts. Later on we look around and say, “We were warned. Why didn’t we act before it was too late?”

Such guideposts point to this one inescapable fact: if we do not prepare our plans now, with courage and wisdom, we shall eventually experience a loss not of 88,000,000 man-years of labor but of 200,000,000 man-years of labor – a loss not of 350 billion dollars in national production, but of more than 500 billion dollars

It is anyone’s guess what would happen to our free institutions once they were subjected to such joblessness and misery and waste.

That’s the real worry for Beveridge too:

Free institutions may be imperilled in any country to which mass unemployment returns.

Production and Consumption

What is responsible for this disparity between the steady abundance the workers could produce, and the uncertain pittance that they get? The answer leaps up from the facts, and Wallace and Beveridge have to deal with it. Under capitalist ownership, the capitalists make profits by keeping as much as they can, and paying out as little in wages as they must. They pay the workers the smallest wage they can bargain them down to. On the average, that amounts to a wage which is just enough to get along on, the smallest amount a worker can afford to work for. Even, for a large part of the workers, it amounts to “not enough … to raise healthy children or maintain their own vigor.” And this is the case even in the most prosperous capitalist country.

Thus, it is the very system of capitalist ownership and wage labor which sets this ceiling on the standard of living. This same system prevents production of abundance. To force the workers to work for low wages the capitalists need a permanent group of unemployed workers as a threat. Every worker must know that there is a man out of a job that the boss can put in his place if he demands higher wages. This ever-existent unemployed group under capitalism Marx named the industrial reserve army.

It is one of the outstanding absurdities of capitalism that millions of workers must be arbitrarily sentenced to suffer unemployment in order to regulate wage levels for the economic system. The capitalists and their economists usually deny the existence of this industrial reserve army. But when talk of a full employment policy smokes them out they insist that unemployment must be preserved.

Beveridge quotes the London Times on this:

Unemployment is not a mere accidental in a private-enterprise economy blemish. On the contrary, it is part of the essential mechanism of the system, and has a definite function to fulfil.

The first function of unemployment (which has always existed, in open or disguised forms) is that it maintains the authority of master over man. The master has normally been in a position to say, “If you don’t want the job, there are plenty of others who do.” When the man can say, “If yon don’t want to employ me, there are plenty of others who will,” the situation is radically altered. One effect of such a change might he to remove the number of abuses to which workers have been compelled to submit in the past, and this is a development which many employers would welcome. But the absence of fear of unemployment might go farther and have a disruptive effect on factory discipline. Some troubles of this nature are being encountered today, but in war-time the over-riding appeal of patriotism keeps them within bounds. In peace-time, with full employment, the worker would have no counter-weight to feeling that he is employed merely to make profits for the firm, and he is under no moral obligation to refrain from using his new-found freedom from fear to snatch every advantage that he can ...

If free wage bargaining as we have known it hitherto is continued in conditions of full employment there would be a continuous upward pressure upon money wage rates. This phenomenon also exists at the present time and is also kept within bounds by the appeal to patriotism. In peace-time the vicious spiral of wages and prices might become chronic.

What is Beveridge’s solution? He has none. He brushes aside the fact that the capitalists not only want profits, but are in a bitter struggle for profits, a struggle in which the loser is destroyed. If there is any surplus the capitalist must spend it on merchandising and advertising to swell the sales of his product. The system doesn’t give the capitalist freedom to pay extra wages to the workers, even if he wanted to. On this central problem of his case Beveridge can offer only a little moral advice. Wages, he says, ought to be determined by reason, and not by a contest between employers and workers. That is Beveridge’s solution.

Henry Wallace similarly offers only another little sermon on this issue. There are some people, he admits, who “... Would tolerate several million permanently unemployed in the unsound belief that the competition of the unemployed will keep wages down and profits up:“ What is Wallace’s solution to this rotten setup? He does not accept it:

The goal of 60 million jobs is based on the opposite premise – one which doesn’t accept the idea that a large part of the citizenry should be denied jobs. This premise asserts that all who want to work and seek work have a right to work.

That ought to take care of the problem!

The Unemployed Reserve Army

When discussion of the Murray Full Employment bill smoked out the American employers they rushed to Congress to fight for unemployment, in terms just as frank as the British capitalists. They testified flatly that full employment would be bad for their industries, that American business needs a permanent reserve army of unemployed to regulate the labor market. Their obedient Congress took the promise of “full employment” out of the bill. American capitalism will not tolerate even a gesture to lessen the workers’ “fear of unemployment,” which “is part of the essential mechanism of the system.” They know they have to keep the reserve army of unemployed, the low standard of living for all employed workers that goes with it, and the low level of production and the chronic crisis that follows from it.

So go the facts of life under capitalism. But on paper, after Wallace and Beveridge have ruled the profit motive out of wage bargaining, they find it easy to move on to a picture of high wages and high production. In 1916 Lenin answered this argument in Imperialism:

It goes without saying that if capitalism could develop agriculture, which today lags far behind industry everywhere, if it could raise the standard of living of the masses, which are still poverty-stricken and half-starved in spite of the amazing advance in technical knowledge, then there could be no talk of a surplus of capital. And the petty-bourgeois critics of capitalism advance this “argument” on every occasion. But then capitalism would not be capitalism; for unevenness of development and semi-starvation of the masses are fundamental, inevitable conditions and pre-requisites of this method of production. As long as capitalism remains capitalism, surplus capital will never be used for the purpose of raising the standard of living of the masses, for this would mean a decrease in profits for the capitalists, instead it will be used to increase profits by exporting the capital abroad, to backward countries.

Lenin summarizes the facts which sweep away the whole case of these would-be reformers of capitalism. Capitalist employers are in business and must be, to make money for themselves, and not to make goods for society. They can afford to start production only when they can sell their goods and end up richer than they started. If production will not increase their wealth they don’t permit any production. It is better to close down and keep what they have, rather than spend money producing what they cannot sell. For sales to increase their wealth they need a market; but they can’t get richer by passing out their own money to make the market for their own goods. They wouldn’t be ahead a penny. Therefore, they have nothing to gain by paying any wages above the least that they can bargain the workers down to. The more they have to pay the workers, the less is left for profits. “As long as capitalism remains capitalism, surplus capital will never be used for the purpose of raising the standard of living of the masses, for this would mean a decrease in profits for the capitalists.”

If the capitalists merely hoarded their profits, the system would run into a crisis at once because all this vast buying power would be withdrawn from the market. To keep the system running the capitalists must be able to keep their profits and spend them too. They do that by spending their increased money-capital for capital equipment, additional machines and factories. Thus their accumulation of wealth can really grow, and only such growth can avoid a crisis for the system. Yet capital investments through the building of new factories is possible only as new markets are found for the increased output. The growth of the home market is soon used up; and the capitalists must look outside, to yet undeveloped countries as fields for growth. Once there is no profitable use for capital at home, “it will be used to increase profits by exporting the capital abroad, to backward countries.”

Lenin wrote his Marxist analysis in 1916 against the petty-bourgeois Wallaces and Beveridges of that day. In the thirty years that have elapsed, history has verified the analysis over and over again. Every advance of capitalism has only brought increased pressure for expansion into foreign fields, where profits could be secured. The capitalist nations have fought two imperialist wars for the vital privilege of controlling backward countries, as fields for exporting capital. The capitalist countries with the least fields for expansion have sickened and collapsed economically, one after another, and capitalism as a whole has gone into decline. And still not one capitalist country has been able to cure its crisis by raising the living standard of the masses, because there is no capitalist profit in doing that.

Wallace and Beveridge offer the old recipe with a new sauce, a Keynesian government planning board to create permanent prosperity through government spending. They do not hesitate to claim that the most sweeping cures can be worked by government spending.

Beveridge says:

There are some things of which the state can make certain. It can, by incurring expenditure, raise the total demand for labor to any desired point; that is to say the State can make certain that there is always a demand for labor quantitatively exceeding the supply of labor.

The fallacy of this Keynesian economics was discussed in my article in the May issue of Fourth International. In brief, this is a desperate remedy, which soon destroys itself, and the economic system that tries it. The idea is to furnish the capitalists fictitious growth of wealth. Since they lack opportunities to invest in new factories, issue government bonds to give them an outlet for their funds. Then let the government spend the money building public works to stimulate the market, just as it would be stimulated if the capitalists spent it in building new factories. The capitalists do not accumulate new factories, instead they accumulate boxes full of interest-bearing government paper. The government can even spend the borrowed capital on munitions to be burned up in a war, and still the capitalists accumulate paper wealth, and allegedly all goes well because accumulation is what makes capitalism run.

This easy paper substitute for real accumulation seems too good to be true and it is. Fictitious paper capital is only a parasite on real capital. The interest and principal on these government bonds can be paid only by taxing the production from real capital. Today, a fictitious capital of 300 billion dollars in federal debt seeks to drain income from the real capital, the productive equipment of the nation, which is valued at approximately upwards of 133 billion dollars. Such a drain drives the capitalists to raise prices and cut wages, to leave a surplus to pay the taxes to make good the government paper holdings of the capitalist class and its banking system.

How the War Was Financed

The war was financed by issuing fictitious capital, and the capitalist class is now wrestling with the problem of finding real wealth to make that paper good. For the war they had to take the risk, because it was a war for their own imperialist profit interests, to eliminate at all costs a dangerous imperialist rival. But it saddled the system with a fearful load. The war proved that the capitalists will spend money like water to save themselves, especially when they have hope of collecting it all back with interest, from their government paper. But Wallace and Beveridge try to use the war as evidence that the nation could have the same high level of production in peace time, under capitalist ownership. Wallace, as usual, timidly avoids the main issue. Although at the previous high level, in 1929, the total peace-time production and national income of the United States was about 100 billion dollars, the war doubled the record production and income to 200 billion dollars a year.

We are a 200 billion dollar nation now – and we should never be satisfied with less. To accept anything less would not be merely “Selling America Short.” It would be imperilling our American heritage.

True enough, the added hundred billion almost entirely represents government war purchases.

In other words, the Federal government represented in 1929 about four per cent of the total market of the nation for finished products. Contrast this with 1944, when the government expenditures accounted for nearly half of all the dollars spent, and the businessmen spent practically nothing for plant or equipment except at the suggestion of the government on behalf of the war effort. From the standpoint of initiating jobs, the Federal government in 1944 was more than twenty times as important as in 1929.

I believe [italics supplied] that we can have a national budget of 200 billion dollars and 60 million jobs by 1950 – and balance our Federal budget at the same time.

Wallace says he believes it, but does not give a word of reason why, here, or any other place in the book. Instead he jumps hastily to the pleasant task of showing a series of “national budgets” which illustrate how conveniently such an abundance could be divided in various ways between industry, agriculture, etc.

To find even an attempt at proof we have to turn to Beveridge:

…. the only sovereign remedy yet discovered by democracies for unemployment is total war. Those who use war experience as an argument for the possibility of abolishing mass unemployment in peace often find themselves met by two popular objections; first, that this result is achieved only at the cost of incurring immense public debt; second, that the achievement of war proves nothing for peace, since the full employment of the civilian population depends on withdrawing millions of men and women from useful production to military service. The first of these objections is an objection not to the possibility of abolishing mass unemployment, but to the assumed cost. As is shown in paragraph 198 and in Appendix C, this objection is without substance. The second objection is also without “substance, because the distinction suggested by it, between men and women in military service as doing useless things and those in industrial employment doing useful things, is invalid. Those who use arms are neither more nor less usefully employed than those who make arms; both users and makers are engaged in meeting needs of the highest order of priority.

Certainly fighting with arms is exactly as useful or useless as making arms. But capitalism can organize spending for imperialist war because it is useful, in any “order of priority,” to the capitalist imperialists, and to them only. Yet Beveridge dares claim that capitalism can and will give jobs by spending for the workers, by providing good homes, better food, a National Health Service, and other things that conquer no empires for the capitalist class. Beveridge merely tries to cover over the difference between spending useful to the capitalists and to the workers.

His other point, “paragraph 198,” etc., gives the standard case from John Maynard Keynes for the cure by government borrowing and spending, previously discussed.

* * * *

The demand to take the fetters off production and for full employment is a social demand on a very high level, far beyond the ordinary immediate demands in the economic struggle. Today, just as other social demands are taking shape as mass demands, this too has become a mass demand. These two books take the demand for granted. The anti-labor US Congress passed the Murray Full Employment bill because it understood very well that the still-confused demand for “some change” in the economic system was too widespread to be ignored. A large number of labor and farm organizations petitioned Truman to sign the bill, even with the “full employment” promise out, as a step, in their opinion, toward corrective regulation of the economic system.

The social demand which has called forth the Congressional maneuvers and these two books, is far more important than these books themselves. The workers know what full production can accomplish, they know that the fetters on production must be removed, and they are searching for the program that will do it. The working class as a whole is voicing this demand, a demand which cannot be satisfied except by socialism, because only socialism can take the capitalist fetters off production.

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